A previous post introduced the general concept of ROT provisions as a means to protect suppliers as creditors in the insolvency of their customers. The basic principle of ROT under German law is that the supplier remains the owner of the goods which it has supplied to its customer until the customer has fully paid the purchase price for the goods.
Foreign suppliers are often not familiar with the legal framework applying in an insolvency of their German customers. That lack of familiarity may leave them ill-prepared to deal with distressed customers. In many cases, the foreign suppliers have not taken the measures necessary to protect themselves.
I plan to provide readers throughout the following months, with information that suppliers may find helpful to better protect their position in case of an insolvency of their German customer. Questions and comments are welcome!
The U.S. Supreme Court in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, ___ S. Ct. ___, 2012 WL 1912197 (May 29, 2012), held that a debtor may not confirm a chapter 11 "cramdown" plan that provides for the sale of collateral free and clear of existing liens, but does not permit a secured creditor to credit-bid at the sale. The unanimous ruling written by Justice Scalia (with Justice Kennedy recused) resolved a split among the Third, Fifth, and Seventh Circuits.
On December 12, 2011, the Supreme Court granted a petition for certiorari in a case raising the question of whether a debtor's chapter 11 plan is confirmable when it proposes an auction sale of a secured creditor's assets free and clear of liens without permitting that creditor to "credit bid" its claims but instead provides the creditor with the "indubitable equivalent" of its secured claim. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166 (cert. granted Dec. 12, 2011).
Earlier this year, the United States Court of Appeals for the Eleventh Circuit decided in In re Lett that objections to a bankruptcy court’s approval of a cram-down chapter 11 plan on the basis of noncompliance with the “absolute priority rule” may be raised for the first time on appeal. The Eleventh Circuit ruled that “[a] bankruptcy court has an independent obligation to ensure that a proposed plan complies with [the] absolute priority rule before ‘cramming’ that plan down upon dissenting creditor classes,” whether or not stakeholders “formally” object on that basis.
On 23 February 2011, the Federal Government (Bundeskabinett) adopted the government draft (Regierungsentwurf) of an act (Entwurf eines Gesetzes zur weiteren Erleichterung der Sanierung von Unternehmen) that proposes material changes to the German Insolvency Act (Insolvenzordnung). The government's aim is to modify the economic terms for the restructuring of distressed companies .
The German Federal Civil Court (BGH) in its decision of 15 April 2010 (IX ZR 188/09) clarified the legal position of holders of preferred stock in insolvency plan proceedings.
As part of the German government’s costs savings package, a change in the German Insolvency Code may be implemented which will grant to the German fiscal authorities a preferred creditor status.